Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks (GDXJ) are justified from the risk/reward point of view at the moment of publishing this Alert.
Some might consider an additional (short) position in the FCX.
Miners’ rally failed, gold’s upward momentum is broken, and the USDX appears to have bottomed. Very interesting times ahead!
Let’s start today’s discussion with the GDXJ’s short-term charts, as that’s where we see the most interesting action.
While the recent rally might have seemed like a big deal, in reality…
Junior mining stocks simply verified their breakdown below the rising, black resistance line. And it happened in perfect tune with the sizes of rallies that we saw after the previous negative surprises from the nonfarm payrolls (marked with vertical, dashed lines). This means that the top is very likely in.
Zooming in allows us to see that the GDXJ actually broke below its very short-term support line, which is yet another bearish confirmation. After all, when that happened after the August-September double-top, it was followed by a sizable decline.
The next (temporary) stop is the previous 2023 lows.
Speaking of those lows, the price of the FCX is already testing its yearly lows.
I described the technical weakness of this company multiple times in the past, and indeed, it’s been moving lower recently. This year’s lows are the final short-term stop before this company’s shares tumble to its 2022 lows and then – quite likely – much lower, similarly to what they did in 2008. In other words, it’s not only that profits from our short positions in the GDXJ are likely to increase in the future – the same goes for the profits from our short position in the FCX.
Let’s switch gears and zoom out significantly.
Enter the very long-term USD Index chart.
This day this, the other day that – it’s easy to get sucked into the “short-termism” while ignoring what’s really going on.
And what IS really going on in the USD Index is this:
The USDX is after a very long-term breakout and its verification. It was likely to soar based on this breakout, and when I was warning about it in the previous years, almost nobody listened. Once the USDX soared through 110 like a hot knife through butter, people paid attention, but since it corrected, people are questioning the rally once again.
Let me tell you this: Corrections. Are. Normal.
The fact that the USDX declined to its 2017 high (ok, it moved a bit below it) and then rallied back up, means that the breakout above this level was verified, and that the USDX gathered strength for another massive upswing.
This is exceptionally bullish for the following weeks and months – for the USDX, that is. And since the latter and precious metals tend to move in opposite directions, this has profoundly bearish implications for gold, silver, and mining stocks. And it has profoundly optimistic implications for those positioned to take advantage of those moves.
Staying with the big picture for now, we see that the gold stocks’ proxy – the HUI Index – verified its breakdown below the rising dashed resistance line. As the move was verified, the medium-term decline is now ready to continue. The implications are profoundly bearish.
The other important proxy for mining stocks (in particular junior mining stocks) – the Toronto Stock Exchange Venture Index, continues to point to much lower prices in the following weeks. The current situation is very similar to what we saw in 2008 and 2013, right before the enormous declines in the precious metals sector – and especially in mining stocks.
The very long-term chart featuring world stocks has just as bearish implications.
The current situation is very similar to what we saw in 2008, right before the biggest part of the decline. Stocks started their decline from pretty much the same price levels, then they declined, then they corrected about 61.8% of the initial decline, and now they are moving lower once again.
The lower part of the chart shows how extremely bearish the implications were for the mining stocks – the same is the case right now.
On a short-term basis, and focusing on the U.S. stock market, we saw a corrective upswing, but I wouldn’t make too much of it. The interest rates are still very high, and the economic situation becomes more difficult. Stocks are likely to reflect that.
Technically, what we’re looking at right now seems similar to the March 2022 rally. It was sharp, but it was very temporary. The decline returned with a vengeance back then, and the same thing is likely this time.
Zooming in on the USD Index, we see that it just verified its breakout above the June 2023 top by moving back to it and then rallying once again.
This, plus the fact that the recent pullback was similar (directly and through the RSI) to what we saw in May and June 2022, makes it likely that the USD Index is ready for another big upswing. And as I wrote earlier today, the implications for the precious metals sector are bearish.
Gold itself seems ready to post the weakest weekly result since September. This is taking place after the concern with war (as measured by Google Trends’ data) peaked and after gold topped very close to its triangle-vertex-based reversal point.
All this makes it very likely that the medium-term top in gold is indeed in.
Please note that gold just invalidated its attempt to move above $2,000. When that happened after the war concern peaked in 2022 (marked with black arrows), that meant that a big decline was about to follow. The same is likely now.
Gold’s daily chart shows that it topped in tune with its past patterns – with RSI close to 70. The combination of resistance levels close to $2,000 held. Both factors support the scenario in which gold moves lower from here.
Copper verified its breakdown below the rising resistance line, and the recent small upswing didn’t change anything regarding the validity of the breakdown. The next big move in the price of copper is likely to be to the downside. The initial medium-term target is just at / slightly below $3. And then – after a pause – even lower, in the $2.3 - $2.6 range.
All in all, it seems that our profits from the short positions in the GDXJ and in the FCX are likely to increase soon.
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Overview of the Upcoming Part of the Decline
- It seems that the recent – and probably final – corrective upswing in the precious metals sector is over.
- If we see a situation where miners slide in a meaningful and volatile way while silver doesn’t (it just declines moderately), I plan to – once again – switch from short positions in miners to short positions in silver. At this time, it’s too early to say at what price levels this could take place and if we get this kind of opportunity at all.
- I plan to switch from the short positions in junior mining stocks or silver (whichever I’ll have at that moment) to long positions in junior mining stocks when gold / mining stocks move to their 2020 lows (approximately). While I’m probably not going to write about it at this stage yet, this is when some investors might consider getting back in with their long-term investing capital (or perhaps 1/3 or 1/2 thereof).
- I plan to return to short positions in junior mining stocks after a rebound – and the rebound could take gold from about $1,450 to about $1,550, and it could take the GDXJ from about $20 to about $24. In other words, I’m currently planning to go long when GDXJ is close to $20 (which might take place when gold is close to $1,450), and I’m planning to exit this long position and re-enter the short position once we see a corrective rally to $24 in the GDXJ (which might take place when gold is close to $1,550).
- I plan to exit all remaining short positions once gold shows substantial strength relative to the USD Index while the latter is still rallying. This may be the case with gold prices close to $1,400 and GDXJ close to $15 . This moment (when gold performs very strongly against the rallying USD and miners are strong relative to gold after its substantial decline) is likely to be the best entry point for long-term investments, in my view. This can also happen with gold close to $1,400, but at the moment it’s too early to say with certainty.
- The above is based on the information available today, and it might change in the following days/weeks.
You will find my general overview of the outlook for gold on the chart below:
Please note that the above timing details are relatively broad and “for general overview only” – so that you know more or less what I think and how volatile I think the moves are likely to be – on an approximate basis. These time targets are not binding nor clear enough for me to think that they should be used for purchasing options, warrants, or similar instruments.
Letters to the Editor
Please post your questions in the comments feed below the articles if they are about issues raised within the article (or in the recent issues). If they are about other, more universal matters, I encourage you to use the Ask the Community space (I’m also part of the community) so that more people can contribute to the reply and enjoy the answers. Of course, let’s keep the target-related discussions in the premium space (where you’re reading this).
Summary
To summarize, the medium-term trend in the precious metals sector remains clearly down, and given that the fear has most likely peaked and the current technical indications point to lower precious metals prices, it seems that we won’t have to wait for much lower prices for long. The same goes for the FCX stock price.
We completed 11 profitable trades in a row, and we currently have two profitable trading positions open. Congratulations!
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Locking in those is a great idea not only because it’s the perfect time to be ready for what’s next in the precious metals market but also because the inflation might persist longer than expected, and prices of everything (including our subscriptions) are going to go up in the future as well. Please reach out to our support – they will be happy to assist you and make sure that your subscription days are properly extended at those promotional terms. So, for how many years would you like to lock-in your subscription?
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in junior mining stocks are justified from the risk to reward point of view with the following binding exit profit-take price levels:
Mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $28.12; stop-loss: none.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding exit level for the JDST: $10.54; stop-loss for the JDST: none.
For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway.):
Silver futures downside exit price: $20.22 (stop-loss: none)
SLV exit price: $18.62 (stop-loss: none)
ZSL exit price: $24.98 (stop-loss: none)
Gold futures downside exit price: $1,812 (stop-loss: none)
Spot gold downside exit price: $1,792 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $8.43 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $19.49 (stop-loss: none)
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Optional / additional trade idea that I think is justified from the risk to reward point of view:
Short position in the FCX with $27.13 as the short-term profit-take level.
Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)
Insurance capital (core part of the portfolio; our opinion): Full position
Whether you’ve already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.
Please note that we describe the situation for the day that the alert is posted in the trading section. In other words, if we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices to decide whether keeping a position on a given day is in tune with your approach (some moves are too small for medium-term traders, and some might appear too big for day-traders).
Additionally, you might want to read why our stop-loss orders are usually relatively far from the current price.
Please note that a full position doesn't mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder - "initial target price" means exactly that - an "initial" one. It's not a price level at which we suggest closing positions. If this becomes the case (as it did in the previous trade), we will refer to these levels as levels of exit orders (exactly as we've done previously). Stop-loss levels, however, are naturally not "initial", but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks - the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGL, GLL, AGQ, ZSL, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as "final". This means that if a stop-loss or a target level is reached for any of the "additional instruments" (GLL for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and GLL as still open and the stop-loss for GLL would have to be moved lower. On the other hand, if gold moves to a stop-loss level but GLL doesn't, then we will view both positions (in gold and GLL) as closed. In other words, since it's not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can't provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the "additional instruments" without adjusting the levels in the "main instruments", which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels daily for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Furthermore, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
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On a side note, while commenting on analyses, please keep the Pillars of the Community in mind. It’s great to provide points that help others be more objective. However, it’s important to focus on the facts and discuss them in a dignified manner. There is not much of the latter in personal attacks. As more and more people join our community, it is important to keep it friendly. Being yourself, even to the point of swearing, is great, but the point is not to belittle other people or put them in a position of “shame” (whether it works or not). Everyone can make mistakes, and everyone does, in fact, make mistakes. We all here have the same goal: to have a greater understanding of the markets and pick better risk-to-reward situations for our trades. We are on the same side.
On another – and final – side note, the number of messages, comments etc. that I’m receiving is enormous, and while I’m grateful for such engagement and feedback, I’m also starting to realize that there’s no way in which I’m going to be able to provide replies to everyone that I would like to, while keeping any sort of work-life balance and sanity ;) Not to mention peace of mind and calmness required to approach the markets with maximum objectivity and to provide you with the service of the highest quality – and best of my abilities.
Consequently, please keep in mind that I will not be able to react / reply to all messages. It will be my priority to reply to messages/comments that adhere to the Pillars of the Community (I wrote them, by the way) and are based on kindness, compassion and on helping others grow themselves and their capital in the most objective manner possible (and to messages that are supportive in general). I noticed that whatever one puts their attention to – grows, and that’s what I think all communities need more of.
Sometimes, Golden Meadow’s support team forwards me a message from someone, who assumed that I might not be able to see a message on Golden Meadow, but that I would notice it in my e-mail account. However, since it’s the point here to create a supportive community, I will specifically not be providing any replies over email, and I will be providing them over here (to the extent time permits). Everyone’s best option is to communicate here, on Golden Meadow, ideally not in private messages (there are exceptions, of course!) but in specific spaces or below articles, because even if I’m not able to reply, the odds are that there will be someone else with insights on a given matter that might provide helpful details. And since we are all on the same side (aiming to grow ourselves and our capital), a ton of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
